KKR sounds warning about covid-19 impacts, TPG combines three companies to form software platform, LPs feel liquidity heat but no fears about widespread LP defaults

KKR issues a warning about COVID-19's adverse effects on its business and TPG merges three companies to form a software platform.

Happy Wednesday, Dear Tech Take readers! This is Milana Vinn with your weekly tech dispatch.

Another week has passed, and new ways to kill time at home are emerging. Upon my return to Brooklyn from the Poconos, I’ve been keeping myself busy preparing to move into our new apartment before the weekend. Well… the boxes keep multiplying, but when I look around, the house looks like it hasn’t been touched. Nevertheless, I’m very excited to settle into our new home in Dumbo. Of course, we plan to stay on top of the social distancing guidelines and honor all the precautions through the moving process. Our building requires that movers wear masks and gloves the entire move. Hope other buildings are doing the same.

Anyone else making a move during covid-19? Curious to hear your experience.

Ok, onto some tech news …

TPG Capital is introducing Digital.ai, a software company that plans to become a leading provider of integrated developer and operations tools (DevOps).

The company will be formed through the combination of TPG-backed Collabnet VersionOne, XebiaLabs and finally, newly acquired Arxan Technologies. TPG’s Digital.ai announced its acquisition of Arxan from TA Associates earlier today.

The three companies serve software developers in different aspects of their work – CollabNet in planning, XebiaLabs in software release and Arxan in security.

The combination is beneficial for customers that are looking to deal with fewer vendors and are seeking more integration of their software tools, Nehal Raj, a partner at TPG, told me.

“From the investment standpoint, there is a bigger opportunity to take these best-in-class tools that are siloed and put [them] together in a very strategic integrated way. And then, sell the integrated suite into the market that comprises now three different tools — but probably overtime five to six different tools — that work together in a seamless way as one product,” the investor told me.

Other PE firms have spotted the opportunity in DevOps investing.

Digital.ai operates in a similar market as Perforce Software, backed by Clearlake and Francisco Partners, and Idera, backed by TA Associates, HGGC and Partners Group.

Both Perforce and Idera have grown through multiple add-on acquisitions and both offer a set of complementary developer tools. Both companies are sizable too. In May, I wrote that Partners Group’s investment in Idera valued the company north of $2 billion. Perforce was reported to have a comparable size.

While similar in its growth path and end-market, Digital.ai plans to stand out, Raj said.

“We wanted to do something very different,” Raj said. “We wanted to create something that has a lot of strategic consistency and we wanted to create one company: one sales team, one development team, one management team, one go-to-market. And to me, this is really unique and differentiated in the space, and what customers are looking for.”

Stay tuned for more coverage of Digital.ai later today.

In other news, Bain Tech Opportunities announced its second platform investment.

The growth equity and tech-focused arm of Bain Capital led a $145 million Series C fundraising round for BioCatch, a behavioral biometrics security and fraud prevention company.
Other investors participating in the round include Industry Ventures as well as existing shareholders American Express Ventures, CreditEase, Maverick Ventures and OurCrowd, among others.

Interns: Before I wrap up, I have one last question for you on behalf of the newcomers in the PE world: How has coronavirus impacted your summer program or internship? Have you been informed of a delay in the start date or will you be virtually onboarding instead of in-person? I’m collecting information on the issue, so send it my way at mvinn@buyoutsinsider.com

Top Scoops
We have an in-depth examination of LP liquidity fears. The idea is that, depending on who you talk to, fund investors are either worried about liquidity pressure, but not overly so, or are terrified of an impending liquidity crisis and mass LP defaults.

The consensus among LPs Buyouts talked to was that liquidity pressure has increased as GPs have been calling more capital than usual. But the industry will likely not see a wave of LPs defaulting, Chris writes on Buyouts. Interestingly, capital is not necessarily being called for deals, like in a normal market, but to pay down subscription lines of credit.

“We have seen [subscription lines of credit] getting repaid. More volume than usual,” a family office LP said. “Some are fully paying off [subscription lines] and others less. But … some of this would be happening even if it weren’t for [coronavirus].

“I don’t think it will create liquidity pressures yet. Still early. It may in fact help future liquidity to the extent GPs have cleared [subscription] lines thereby able to fund future initiatives without having to go to their LPs for capital,” the family office LP said.

Read the story here on Buyouts.

KKR has sounded a warning about the covid-19 impact on its business, according to a regulatory filing with the SEC yesterday. KKR lists potential hits to its fund investments and said many of its investments will be reduced “from their valuations at Dec. 31, 2019.” Dropping valuations will be driven by revenue declines and decreases of public market holdings and public market equivalents in private holdings.

The firm also said pandemic travel restrictions could hinder the firm’s ability to raise new funds and limited partners may not be able to commit new capital because of their asset allocation policies. KKR also may not be able to exit investments if the covid-19 lock down continues. Read the filing here.

Meanwhile, KKR-backed Longview Power LLC, filed for bankruptcy protection with a restructuring that includes emergency loans from the government to help continue payroll, Wall Street Journal reports.

Have a great day! Hit me up as always with tips n’ gossip, feedback or just to chat at mvinn@buyoutsinsider.com.